WHY BUSINESSES WITH GLOBAL CONCERNS NEED A NEW DYNAMIC ON THEIR EXECUTIVE TEAM

-BY GEORG ANNEN, Chief Financial Officer, Unger / USA & Europe

To navigate a company through rough market conditions requires knowledge, experience, and leadership. Management teams rely first of all on timely and accurate financial data and detailed business analytics. ROI calculations, valuations, and future cash-flow predictions are other critical factors. All this can give a company a vital competitive edge — and this is where controlling comes into play. Such prognostic information is so essential to management decisions, and the responsibilities of the controlling function are so extensive that I prefer to call it “ÜBER-Controlling” (“über,” the German word meaning “in excess of,” “above,” or “over,” not to be mixed up with Uber, the mobile taxi service!).

Production Controlling: Information about material, labor, energy, freight, and other manufacturing costs in total and by unit; make-or-buy decisions; margin comparison based on standard costs and variance analysis; discounted cash-flow calculation for capital investments, depreciation alternatives, and inventory optimization.

An ÜBER-Controller does not just collect data from these three functions. He or she adds another dimension to it: Instead of looking just backwards or at today’s performance, he or she concentrates on looking forward. Through strategic and mid-term planning, annual budgeting, and rolling forecasting systems, the future of the company is being shaped by the ÜBER-Controller’s involvement and expertise.

Reporting

Nevertheless, ÜBER-Controlling can only be successful when it works hand-in-hand with the financial accounting department under the leadership of the corporate CFO. Statutory financial statements for external information purposes (looking back) and management reports for management decisions (looking forward) are closely intertwined. Modern, fully-integrated ERP systems with new general ledger concepts and dedicated FI and CO modules can provide a multitude of management reports. For improved management reporting purposes, it is important to use notional costs for depreciation, interest, taxes, and asset and liability amounts based on actual market valuations.

The ÜBER-Controller’s role and responsibilities are critical for the success of a company. They transition the typical conservative finance function into a future-orientated, vibrant think tank. The more specialized and entrepreneurial the controlling knowledge is, the better is this individual’s support as a business partner.

The function of the ÜBER-Controller and his or her entire controlling team is highly delicate, because they are a hybrid in an organization. Whenever I discuss my concept of an ÜBER Controller, the question comes up: Are they part of finance or of an operational business function? The best way to deal with it is to have controllers sit next to the sales and production managers and be their day-to-day “sparring partners.” However, it is best for the ÜBER Controller to report into the CFO function, thereby guaranteeing complete independence and objectivity in their judgment.

Moderator David Jansen, Partner at PricewaterhouseCoopers, promised that attendees would get great insights from “the top of the finance pyramid among global companies today” —and they did.

Discussing Tumi Luggage’s 184 wholly owned retail stores, Michael Mardy, CFO, said the decision to become a retailer and the model Tumi used in developing its retail presence in 75 countries might well be the reason why Samsonite offered to pay $1.8 billion to buy Tumi. Retail does not reliably make money for the company. But it generates a lot of cash, allowing Tumi to pay down debt. Furthermore, it’s been “a great way to build our brand.”

He said that “on average, the retail stores earn about $1,200 per square foot. Our wholesale business operates at about a 39 percent EBITDA margin, our retail business operates at about a 25 percent EBITDA margin.”

Describing this operating model as a way to manage risk, Mardy, formerly CFO for a McDonald’s supplier, said, “We pick a local businessperson who really knows the market and we make them a distributor, make a sweetheart deal with them. Over time as we learn the market, we kind of flex our muscles and get a little bit more involved, making sure we’re giving the distributor his or her share of the profits.”

Bill Flynn, CFO for Sharp Americas, said his company’s practice of hiring distributors for the Latin American market is similar. (Like Tumi, Sharp Electronics is in the process of being acquired, in a deal with Foxconn.) “The key for us is protecting our brand,” said Flynn. “We’re careful in how we vet those distributors and then take them through extensive training. We set pricing standards for them, and we make sure that as they go to market, they are meeting those standards.” Sharp looks for distributors with good financial standing and presence in the region, and who have good knowledge of the market.

With its warehouse space, Sharp has followed a plan to keep the footprint small. “Since [2005], we’ve reduced our fixed warehouse square footage by 90 percent,” said Flynn.

To a question on how the panelists manage international risks and political uncertainties, Claude Draillard, CFO of Dassault Falcon Jet, said business jets attract a unique type of customer, 95 percent of whom are corporations, and some of whom don’t register the aircraft in the country where they are living. Not wanting to be ensnared in an illegal transaction, Draillard says, “We vet our customers before vetting our distributors.”

There are in fact no distributors, he added. “We want to control what’s being told to the customer before the sale and after the sale. We want to control the entire chain of value for the brand.”

The company’s training program, focusing on KYC (know your customer) “is absolutely necessary,” he said. Beyond that, “educating the sales force, educating those who are dealing with the customer, is a very important part of the CFO job, because [as CFOs] we are the backbone of compliance.”

With perceptions as pointed and candid as these, panelists gave the audience evidence that the CFO’s role in a global company requires, in Flynn’s words, “people skills, project management skills, and strong process knowledge.”

REGULATORY ISSUES VARY COUNTRY BY COUNTRY AND RETAINING TALENT REQUIRES FOCUS AND CREATIVITY

In today’s global economy the role of a CFO is more complex than ever before. Successful CFOs must be able to operate in markets all over the world, with different currencies, cultures, time zones, tax structures, and regulations.

This was the basis for conversation during a recent World-Class Companies CFO Dinner Series event, entitled, “Challenges, Opportunity, and Driving Growth in a World-Class Enterprise; CFO Optics and Insights.” The evening was hosted by CFO Studio and the discussion leader was Richard Veldran, CFO at business-to-business data provider Dun & Bradstreet. Mr. Veldran manages a global finance team of 450, doing business in more than 200 countries.

“The global landscape and the challenges of increased regulations outside the United States were foremost in the thoughts of the CFOs who attended the dinner,” Mr. Veldran said in an interview.

Heightened regulatory requirements are having an enormous impact upon the role of the CFO, and Mr. Veldran has a unique vantage point on the challenges companies face complying with myriad new regulations that differ by country. Dun & Bradstreet has compiled the world’s largest commercial database, with information on more than 250 million businesses around the globe. The company supplies some of the largest global organizations with the tools they need to help them manage compliance on a global basis.

“Compliance is a new, fast-growing area of our business. With our vast global database and expertise in identity resolution we help companies with compliance regulations from KYC (know your customer) to FCPA to FATCA,” said Mr. Veldran, referring to foreign regulatory and tax compliance.

It’s no surprise that in this evolving regulatory environment the relationship between the CFO and the general counsel has taken on added importance. The general counsel is responsible for all aspects of regulatory compliance, and the CFO must manage all risk across the enterprise, including regulatory risk.

“CFOs are tighter with the general counsel than ever before,” said Mr. Veldran. “As the regulatory environment has gotten more intense, the chief financial officer and the general counsel need to help each other to manage risk so they can maximize the growth of the company. The bond between the two of them has become stronger than ever.” Conducting business across the globe brings increased complexity to the role of the chief financial officer.

High Stakes Regarding Talent

“We live in a world where the actions of one rogue employee could cause enormous financial upheaval for a company. It’s not possible to be everywhere at once when managing global operations. CFOs must make sure they are operating with a robust system of controls and oversight in place,” says Mr. Veldran. At Dun & Bradstreet, enterprise risk management is embedded in every function throughout the company, reaching well beyond the Finance and Legal departments. All business leaders recognize that they need to manage risk to achieve their performance goals.

With such high stakes it is important to have a team in place that is both educated and accountable. A discussion of talent-related challenges followed, with the major issues being acquiring the best talent, developing the individuals, and having measures in place to retain them for the long term.

“Talent retention is of the utmost importance, especially in large, complex, global organizations,” said Mr. Veldran.

Technology and the Customer

Modern financial management systems are providing instant insight into the full value chain of a company, agreed the participants. This goes beyond the four walls of the organization and gives access to customers, suppliers, banks, and the entire workforce, including external and contingent employees.

To better serve customers, Walmart, for example, uses innovative technology to track inventory, said Henner Schliebs, Finance Expert and Vice President at SAP, a CFO Studio Business Development Partner. “On Black Friday, Walmart optimized West Coast store shelves based on the East Coast early-morning experience and predictions [for Black Friday sales]. This is only possible with 21st-century technology,” explained Mr. Schliebs.

Customers are expecting a fully digital experience, he added. “A leading consumer brand enables its customers to find a song on the Internet, download it instantly, and have shipment and invoice/collection automatically embedded into the whole process. And again, it’s only possible with modern technology in real-time,” he said.

Real-time business intelligence like this is the way of the world. It’s also a defense against disruptive technologies and business models, said Mr. Schliebs. “Live business is imperative in all finance-transformation programs, especially as the threat of the next Uber-ization in all industries is high. A strong CFO has to be empowered to lead the strategy of a company,” said Mr. Schliebs.

JLL, a global real estate services firm, is hearing of these same issues from its clients. “Not only is retention critical, but locating solid percentages of targeted labor is also very important. Providing real-time technology tools that allow our clients to optimize their workforce-segmentation model and screen locations through high-level labor analytics helps us to support them in talent requirements,” explains Andrea Van Gelder, International Director, JLL.

At the dinner, which was held at Morton’s The Steakhouse in Chicago, the camaraderie was evident as all the attendees remarked on how similar their circumstances were. The very complexity of the finance and operational processes in business today “make a live environment and the real-time insights offered at this dinner very satisfying,” concluded Mr. Schliebs. “[Such insights are] a must-have in all aspects of the CFO role, specifically in combination with the need for a truly global solution (local compliance) focused on the particular industry (vertical compliance) and risk management embedded in any finance process.”